There are just a few companies that, at some point, do not suffer a freeze in revenue growth. In a very interesting and documented study about 600 large companies as told in Stall Points, 87% of those companies reached a stall in revenue. Most of the stalls are not related to external causes, and they are directly linked to strategic choices.
Cost of the plateau
The serious impact of the plateau can be seen in two dimensions:
- The short-term “punishment” of the market in terms of capitalization and turnover of key resources and in general of employees
- To what extent the effects of point 1 prevent the recovery of growth in the medium term
Due to the stall, nine out of ten of the companies examined was hit by a 50% decrease in market value, while more than half saw their value fall by 75%.
Companies that recovered from the stall are those reacting quickly. On the other hand, 54% of the stalling companies enters a negative/slow growth trajectory below 2% y/y, with a 67% probability of being climbed, purchased or going bankrupt. However, recovery is still possible, and in 7% of the examined cases, companies recover from this dangerous trajectory and manage to return to solid growth.
Factors causing the stall
Fifty companies, out of the 600 initially considered, have been sampled cross-sectors. All the material available in the years pre and post the apogee of revenues was examined on this Gang of Fifty: financial statements, analyst reports, stock market reports as well as interviews with the first line of Managers and Directors.
42 causes of the economic / financial stalemate have been identified. 87% of the causes identified are controllable, the result of explicit strategies and organizational choices. Four factors, in particular, underlie more than half of the cases.
- Premium Position Captivity (23%). The inability to react to low-cost competitors or to changes in customer preferences
- Innovation Management Breakdown (13%). Inability to generate positive cash flows from innovation
- Premature abandonment of the core business (10%)
- 4. Lack of Talents in strategic positions (9%)
Causes are analyzed in depth in the book and I recommend reading it. However, it is immediately worth asking how it is possible that 87% of the causes of the stall in growth are directly attributable to competent and trained managers in successful companies?
The researchers’ response leads directly to the mental models adopted by managers and shared with their teams. Mental Models have been known to mankind from the times of Plato’s parable of the cave. Mental models are decision support systems, lenses through which we see the world, allowing for rapid decision making by promoting the interpretation of the changes taking place. The problem arises when the hypotheses and context that led to the formation of a mental model are no longer true. In these cases, models slow down innovation, prevent understanding of change and lead to groupthiniking.
Avoiding the stall
The hiatus between mental models and reality is at the heart of the strategic choices that lead to a stall. It is, therefore, necessary to close the gap between reality and shared mental models. In the text, activities are suggested to articulate and test assumptions underlying the culture and decision-making frameworks and to bring intelligence structures closer to strategic choices, as well as a system of metrics to evaluate the future that comes.